Lack of leaders may stall Ireland’s progress

29 Jun 2005

If there is a doomsday scenario for Ireland’s economic strategy it is that the billions of euro currently being invested by the Government in science and research do not deliver the expected return. Ireland does not become a centre of research excellence; technology firms do not spring up in the expected numbers; the number of jobs created in knowledge industries does not exceed those lost in traditional manufacturing.

It could be argued the success or otherwise of Ireland’s knowledge-based strategy will largely depend on its ability to produce a cadre of talented managers who can take promising technology, turn it into commercial reality and then, most importantly, build a sustainable business around it.

A report, entitled Barriers to Growth — Opportunities to Scale, presented at the Irish Software Association (ISA) annual conference last month, placed a large question mark over the management capability within the Irish software sector. The report included a survey of Irish software firms and among its key findings were that management skills in respondent companies were heavily skewed towards engineering and on average 35pc of company revenue was dependent on the CEO personally.

“In the indigenous software sector, we have too few experienced management teams — with depth and breadth — leading our companies,” noted the report, which went on to conclude: “Companies must acquire or create a cohesive management team of experienced professional managers who together can provide the leadership, strategic and operational ingredients necessary to construct a world-class company.”

Report co-author Donal Daly of the consultancy firm International Ventures believes management inexperience helps explain why more Irish tech firms are not making the big time.

“It’s the single biggest reason. There isn’t a pool of experienced folks from whom new people can learn. Our experience in Ireland in the past 30 years is about manufacturing stuff well, not how to innovate or grow companies or grow leaders. That’s a huge issue.”

Similar concerns are voiced by the venture capital (VC) community from time to time. At a nanotechnology commercialisation seminar at Dublin City University (DCU) recently, third-level researchers and venture capitalists spent some time debating the issue. The venture capitalists present generally felt management talent was seriously lacking in many cases. The comments of Peter Sandys, founder of Seroba BioVentures, a VC firm that has invested in several IT and biotech start-ups in the past two years, were typical. “Experienced management teams are hard to find,” he said.

According to Sandys, while the money is there for first-round funding, subsequent, larger funding rounds will be dependent on two critical factors: the quality of the technology; and the ability of the management team to deliver commercially. “For us to invest €10m the technology has got to be really novel and it’s got to have a fairly quick commercial payback,” he remarked.

AGI Therapeutics is a prime example of such a firm. Seroba was one of a small group of investors that injected €9.5m in the early-stage biotech firm, which is fronted by John Devane, a former Elan executive who has an impressive commercial record and is well known in the industry. But such deals are few and far between, Sandys pointed out.

Not all venture capitalists, however, are as questioning of the pool of management talent among start-ups. Rory Quirke, investment director of Trinity VC, which led a follow-on investment of €5.5m in Northern Irish software firm Similarity Systems in February, believes the management fraternity has no case to answer. “There are plenty of examples where there are strong management teams in place. A key component for strength of management is experience and, as the tech sector has grown, that experience level has gone up,” he points out.

The problem for Daly is that the sector has not grown as much as it should and is in fact underperforming. A sign of this, he says, is that unlike other parts of this booming economy, there are no genuine world leaders in the tech sector — no Glen Dimplexes, no CRHs, no Smurfits, no Ryanairs. He refutes the argument that the technology sector is relatively young and it takes time to develop businesses of scale.

“In Europe, where the industry is of an equal age, you have Sage, SAP and Business Objects, all of which are billion-dollar plus firms. Why is it that people can come out of Germany, France and the UK and build a billion-dollar company and we can’t?”

One of the key reasons, he believes, is that Ireland’s tech leaders lack real driving ambition. “There’s not the scale of ambition there,” he asserts. “Unfortunately, there’s not a pool of Irish software entrepreneurs who have built €20m, €50m or €100m software companies in the past. There was an interesting article in The New York Times recently about a bunch of entrepreneurs in [Silicon] Valley who just keep on doing it again and again. There aren’t that many software entrepreneurs [here] who know how to do it more than once.”

Not everyone agrees. Says Iona Technologies former CEO and co-founder Chris Horn: “Of the CEOs I would know within the indigenous tech sector, most are hugely ambitious in wanting to grow their companies and build their markets.”

Another dissenter is Professor Barry Smyth, head of the Computer Sciences Department at University College Dublin (UCD) and co-founder of successful campus spin-off ChangingWorlds. It’s not that the leaders of Irish tech firms lack ambition, he says; it’s just that their ventures become ripe acquisition targets for bigger firms.

“Since the sleeping investment giant has re-awoken, some of the prominent companies that you might have earmarked for greater things have been bought out. It seems very often you don’t find Irish technology firms reaching that level, not because they lack the ambition or the opportunity but because they’re identified early and they’re acquired or they merge.”

Irish companies being snapped up in this way may be perceived as a negative development, but Smyth, recent recipient of the 2005 NovaUCD Innovation Award, does not see it that way. “I don’t think there’s anything wrong with it. It’s all about what’s right for the company and for the economy. Let’s put it this way: if Ireland was to develop a reputation of being a proving ground and a birthplace for companies that can really add value and knowledge and are great acquisition targets, then that’s great; that’s going to attract foreign investment into the country.”

But if there is, as Daly contends, an insufficient pool of quality managers in the sector the obvious question then is how can this be changed. Daly believes the first step should be to recognise there is a problem in the first place. Without this, there won’t be pressure for change. Secondly — and this is in fact a recommendation of his report that is due to become ISA policy — he would like to see a leadership development programme put in place that harnesses some of the talent of firms from other sectors.

Smyth is not convinced the answer to any commercial shortcomings lies in tapping the talents of business leaders outside the sector. He firmly believes technology start-ups — especially those centred on so-called ‘disruptive’ or leading-edge technologies — should be run by executives who have a background in technology and can share the vision of what the technology can achieve.

He does see value, however, in putting some additional structures in place to support new businesses right at their point of origin. When it comes down to it, where does a commercially green scientist find a seasoned entrepreneur who can commercialise his or her idea? There are no formal mechanisms for achieving this so the process of selection often comes down to sheer luck. ChangingWorlds, for example, found its CEO in 2000 after Smyth gave a presentation at a First Tuesday networking event that was attended by Luke Conroy, a former senior manager at Sun Microsystems Ireland.

Although VCs and government bodies such as Enterprise Ireland have good contact lists, Smyth feels there could be a case for putting more formal structures in place to match innovators with the right management teams.

Horn feels one of the biggest challenges facing tech firms that are putting such teams together is that so much of the business is conducted overseas. Recruiting international managers to come and work in Ireland is often a difficult and costly task for a young firm. Professor Igor Shvets, principal investigator at the Centre for Research on Adaptive Nanostructures and Nanodevices at Trinity College Dublin, believes the tactic of bringing in a ‘big gun’ from the US is fraught with danger. Speaking at the recent DCU nanotech seminar, the Russian-born physicist observed: “If it doesn’t work out, it can be immensely expensive to get rid of them. For a small company this could be disastrous.” Instead, he favours identifying commercially aware PhD students from a team of researchers and then encouraging them to head up spin-off businesses.

Regardless of whether talent is found at home or abroad, it is critical that Ireland finds the commercial skills needed to justify the billions of taxpayers’ euro that are being invested in transforming Ireland into a knowledge economy.

Smyth is optimistic this talent can be found. “Science Foundation Ireland has generated an entirely new research landscape that is undoubtedly going to drive a whole new set of innovations,” he observes.

“Once those opportunities present themselves, the appropriate commercialisation expertise will fill the void. There’s quite an entrepreneurial spirit in this country at the moment and a lot of people in the current economic climate have the luxury of thinking what they might want to do next. There will be the commercial supply.”